Reassessing the “Consequences” of Consequential Damage Waivers in Acquisition Agreements

Abstract

Consequential damage waivers are a frequent part of merger and acquisition agreements involving private company targets. Although these waivers are heavily negotiated, the authors believe that few deal professionals understand the concept of consequential damages and, as a result, the inclusion of such waivers may have an unexpected impact on both buyers and sellers. The authors believe that this Article is the fi rst attempt to defi ne “consequential damages,” as well as some of the other terms used as purported synonyms, in the merger and acquisition context. After tracing the historical derivation of the term and its current use by the courts, this Article considers the impact of such waivers in a hypothetical business acquisition and proposes some specifi c guidelines for the negotiation of these waivers.

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References

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DP Serv., Inc. v. AM Int'l, 508 F. Supp Lost profi ts and lost future earnings are categorized as direct damages in some instances, and consequential damages in others